With crude oil and naphtha costs continuing to tumble during the first few weeks in May, a further significant reduction in polymer feedstock costs is on the cards this month.
L/LDPE prices took a tumble last month following the €20/tonne reduction in the May C2 contract price, lengthening supply and subdued demand. Producers had hoped for a price rollover, but that proved to be unrealistic. They were soon forced to lower notations in line with the cost reduction.
Material availability for standard LDPE and C4 LLDPE grades has improved considerably over the last two months and producers have sought to liquidate stocks in an environment of falling spot prices.
At the same time, converters are holding back from buying additional material due to an expectation of falling prices and the upcoming bank holiday period. With crude oil and naphtha costs falling since the beginning of May it is widely felt that the June C2 contract price and hence polyethylene prices will also fall this month.
HDPE suppliers' plans for a price rollover were met with strong customer resistance last month and they were quickly persuaded to lower notations in line with the €20/tonne reduction in the C2 contract price. Blow moulding grades were down around €20/tonne while blown film and injection moulding grades fell between €25-30/tonne.
Material was widely available, particularly for blown film and injection moulding grades, with few reported production issues. There was also plenty of imported material around at attractive prices.
Order intake was below expectations last month with buyers reluctant to commit to more than the minimum orders to meet their current production needs. The large number of national holidays in many European countries also had a dampening influence on demand. There is also a widespread belief that polymer notations are likely to tumble in June.
Oversupply and slack demand soon persuaded PP producers to lower notations by more than the €15/tonne reduction in propylene costs last month. Homopolymer film prices fell by at least €20/tonne while homopolymer injection and copolymer injection grade prices fell between €30-35/tonne.
Material availability lengthened in May with most polymer plants running without disruption. Indeed, it was evident that some suppliers were making 'special offers' available to customers in order to reduce rising stock levels. There was, however, not much evidence that imports were having much impact on supply.
Demand was impacted by the series of holidays in May and converters' reluctance to buy no more material than necessary to meet current production requirements. With the June C3 contract price expected to fall buyers are waiting for lower PP prices before replenishing their stock levels.
PS producers responded to the €47/tonne rise in the May styrene monomer contract price by calling for price increases for general-purpose grades of between €50-60/tonne. The premium on high impact polystyrene prices over general-purpose PS prices remained unchanged at €140/tonne. However, given lengthening supplies and slack sales producers had only managed to push through gains of €20-30/tonne by mid-month.
Producers' inventories started to swell early May as most polymer plants were operating without disruption and order intake was weaker than expected. Converters speculated that sellers would likely offload surplus stocks onto the market before the month's end. As such converters bought only the minimum volume to meet current production needs during the first part of the month. It was also apparent that the downward oil price correction could imply even lower PS prices this month.
PVC producers announced planned price hikes ranging between €30-50/tonne last month in an effort to improve margins. This was despite a reduction of €20/tonne in ethylene costs. However, a combination of better material availability and slow demand meant that producers were unable to meet their ambitious targets and by mid-month PVC prices remained largely unchanged against end April levels.
PVC demand in north-western and southern Europe was reported to be lacklustre, but was picking up in central and eastern Europe as well as in Russia. The much awaited recovery in construction sector demand had not materialised last month. However, pipe and profile manufacturers said they were convinced that demand would improve by early summer.
With feedstock costs expected to drop in June larger buyers were confident of obtaining price rebates in the end of month negotiations.
PET resin prices softened during the first half of May due to lengthening inventories and slack demand. May contract prices for key feedstock, paraxylene (PX) was down by €15/tonne while MEG was €26/tonne. The combined impact of cost developments on the PET cost base was €15-20/tonne.
PET producers had targeted a price rollover in May after having given away all of the cost reductions in the previous month. However, most early May contracts were being settled on average down €10-15/tonne compared with the April close.
Demand showed no real signs of improvement last month with participants all along the PET supply chain well stocked. There was also plenty of material available despite production cutbacks. With significant new Chinese PET production capacity due on stream this quarter, there could be further downward pressure on European notations.